Assembly/AU/ 7 (X)I Page 3 Figure 1: Monthly FAO price indices for basic food commodity groups (1998-2000=100) 350 MEAT 300 DAIRY CEREALS OILS Index 1998-2000=100 250 SUGAR 200 150 100 50 0 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Source: FAO 5. Future food prices are surrounded by uncertainty. Temporary factors, such as drought in Australia or a recession in the United States, will wane. But changing demand patterns, higher fuel and fertilizer prices and climate change are more structural. Higher prices should in principle lead to higher production, and lower prices. Yet, the effects of climate change on agricultural production and the demand for biofuels (linking the food and fuel markets) create considerable uncertainty about the “normal” market mechanism. Moreover, uncertainty also prevails around the potential for (bio) technology in raising yields and for the second generation of biofuels to address energy needs without affecting the food market. Despite these uncertainties, most institutions predict prices for most commodities to peak in 2008 or 2009, and then decline gradually but to levels that remain relatively high. Average food price levels for the next 10 years are likely to be higher than during the previous 10 years (see Figure 2). Figure 2: Food Price Forecasts Average of forecasts of EIU, FAPRI, IFPRI, OECD/FAO, USDA and World Bank (2000=100) Forecasts 260 240 220 200 180 160 140 120 100 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Maize Wheat Rice Soybean oil Soybean Sorghum